Weekend Reading #300

This is the three-hundredth weekly edition of our newsletter, Weekend Reading, sent out on Saturday 1st February 2025

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What we're thinking.

There is a lot to think about this week!
 
The end of January is always tricky for a hedge fund manager. No hedge fund manager wants to be in the red in Jan as it really can be an issue psychologically, so a nice green tick regardless how small is most welcome. We wish all our fellow managers out there a happy month-end!
 
Front of mind for everyone and their dog is AI, China and this company nobody heard about until last week called Deepseek. In our uneducated opinion everyone is missing the point here. Whether Deepseek managed an all in cost of $5m or not is not really the point. While it may be bullish for AI adoption, we are less sure it is bullish for Nvidia at this moment in time – as a stock that is. We have always been at pains to make clear the difference between a stock and a company. A stock is a memetic instrument which everybody speculates upon and is a function of human desires, greed and fear. A company is construct which is represented by cashflows, revenues, earnings etc. These are not the same. There is of course a link between them, sometimes its clear, sometimes it isn’t. We are not clever enough to reproduce a DCF predicting the future value of Nvidia with every minute variation accounted for instantaneously. That is a task for the fundamentalists – and soon, if not already, it’s a job for the AI. For us humble thematic people, the equation is simple. Stocks are about risk and reward. Nvidia had the highest market capitalisation on earth coming into last weekend after a rumbunctious run from January 2023 in which the market cap went up 10x. This run was validated by its earnings also going up roughly a similar amount (please don’t come after us on a technicality). As a stock runs upwards, expectations rise and the cost of not meeting them becomes bigger. Fortunately for Nvidia they haven’t disappointed once along the way! But here’s the thing – the most important thing in markets is RATE OF CHANGE. It doesn’t matter if Deepseek is 100x cheaper or 2x cheaper or whatever, the point is that the direction of travel is now less clear. What wasn’t possible last week is possible in everyone’s minds now! Nvidia as a company is going to make boatloads in revenues and earnings going forward and remains a systemically important and wonderful company. But its’ stock now needs to adjust for the CHANGE IN RATE of future prospects. If one needs even slightly fewer, or even if one needs many more, but not as many more as was estimated the day before Deepseek, its still game over. Is it game over for a few days, a few weeks, a few months, we have absolutely no idea but what we do now is that it is far more UNCERTAIN. And markets do not like uncertainty. In the long run, maybe it’s a buy, maybe it isn’t, but for now, we will watch from the sidelines. And please don’t take us too seriously. We know we may be wrong; we change our minds all the time sometimes many times a week (or day). Maybe new evidence will emerge to make us do so tomorrow! We however are quick to adjust always. If we are wrong, we will simply buy it right back again without even so much as a second thought. That is how we roll!
 
Away from the AI story, we saw a potentially significant development with the US Dollar. We have been writing for the past few months that it is difficult to predict what will happen to the dollar and we will monitor the price action carefully and rather wait for a signal than pre-emptively jump to any positions. Well, this week the dollar weakened. Is it the beginning of a downtrend? Maybe, maybe not. But the usual suspects have reacted accordingly. Brazil, China, Gold etc have all had a good week. If this sustains there is a lot of money to be made (and lost). Then again Trump’s tariffs may begin this weekend and who knows what comes thereafter. Lesson of the day – don’t be dogmatic and be willing to change your mind fast.
 
 

What we're doing.

Perhaps a slight delay in writing this but I recently visited Salzburg in Austria where I enjoyed a week of skiing across several of the area’s ski resorts. In previous years, I’ve opted to stay in one resort, keeping it simple with transfers arranged to and from the hotel. However, this year my friends and I decided to hire a car, giving us the ultimate flexibility to ski wherever we wanted to. What’s more brilliant was that all of the ski areas despite being geographically separated were covered on the Salzburg Hinterglemm lift pass meaning we could tap into the lifts as we pleased wherever we went. The highlight for me was the Kitzsteinhorn glacier, where we had several days of champagne conditions atop the 3200m ski area. Interestingly, this was my first time visiting Austria but I’d certainly return given the fast lifts, great ski conditions, and variety of pistes. In addition to that, the après ski and slope-side restaurants were reasonably priced, making for a fantastic and memorable holiday. HS 
 

What we're reading.

This is a spectacular piece from Ashlee Vance about a young US grad student who quite literally used Anthropic’s Claude’s advice to build a Nuclear Fusor in his house he shared with his classmates. As Vance writes, it is indeed rather frightening how this chap managed to get around Claude’s hesitation to help initially. But what Vance wrote was even more amazing and concerning at the same time was the way this kid had AI tools built into his setup and used them seamlessly. As he says, we all better get up to speed because otherwise we will be left way, way behind.
 
On the topic of Anthropic, founder, Dario Amodei wrote a post about Deepseek et al this week which is a must-read.
 
And still, one of the sharpest and smartest accounts on Twitter brought arguably the best take of the week. Wang Qiao articulating the following: “big awakening this week in ai circles is that foundational models r quickly commoditized and its the app layer that will capture value.” DC 
 

What we're watching.

This week marked Holocaust Remembrance Day, which is a very big deal for Jews. ITV’s Good Morning Britain took recent antisemitism to unfathomable levels on this very day. In this absolutely astonishing segment, the anchor somehow managed to scrub the word “Jew” from the occasion with the following bit - “Six million people were killed in concentration camps during the Second World War, as well as millions of others because they were Polish, disabled, gay, or belonged to another ethnic group.”

It was really shocking, and was only surpassed by Deputy PM, Angela Raynor’s tweet on the same day where she miraculously did the exact same thing. “Tonight, I’m lighting a candle to remember all those who were murdered just for being who they were, and to stand against prejudice and hatred today. Never again.” Coincidence? Sadly, no chance given the linguistic gymnastics needed to achieve this. DC 
 

What we're listening to.

I know I’ve harped on about these Telepathy Tapes, but it just gets better. Ky Dickens, the documentarian who put it together, appeared on Tetragrammatron with Rick Rubin, who is just brilliant. What I love about his pods is that there is no fluffy intros or background or anything, he just dives straight into the questions, and they are good. The most provocative and best question asked of Dickens yet came from him when he asked if the rising rates of autism we see in the world are actually a way of humanity advancing to a more spiritual, loving plane. There is a lot of new stuff in here too. In a world of AI taking over all the materialist roles, what is left for humans to do? Maybe the answer is to elevate ourselves using the right side of our brain as Tom Morgan suggests. DC